Money Milestone: At the annual review, talk to your advisor more openly

If you're considering severing the cord, here are five questions that could help you get the relationship back on track, or part on better terms.

By Kimberly Clouse

Jan 26, 2015 @ 9:23 am EST

Many people treat the turning of the calendar from December to January as a milestone and resolve to find a new financial adviser in the first quarter, along with eating less and exercising more.

Before launching a search process to find a new adviser, consider whether it's easier to work on your existing relationship than to start a new one from scratch. And your advisor may not even know that you are not satisfied with the level of client service or investment performance.

Listed below are 5 questions to ask your adviser at your annual review.

Ask your adviser to rate you as a client. Any relationship is a two-way street, including your adviser relationship. Consider asking him or her the following: “On an ascending scale of 1-10, how do you rate our working relationship? What would make it a 10?” Advisers are often counseled by practice management consultants to ask this question of their clients, and I think that the answer is just as valuable -- if not more -- for clients to ask investors. Ideally, the adviser will ask you the same question in response. There is a lot of information in a client ranking of 5 and an adviser ranking of 9. What accounts for the difference? Is it possible to bridge the gap?

Ask if you are a good fit for the firm. Charlotte Beyer, founder of the Institute for Private Investors and author of “Wealth Management Unwrapped”, encourages investors to look in the mirror to assess their level of sophistication and their need for control. Ask the advisery firm to describe their ideal client along these two dimensions. If you are not a fit for that firm, you will likely have a more productive partnership elsewhere - where you are the ideal client.

Ask about your portfolio's asset allocation and how the portfolio is customized to your needs. Is my performance similar to clients who are like me? If not, why not? If I were to become a new client today, and fund my portfolio with 100% cash, would my portfolio be much different than it is now? Many advisors manage portfolios in a tax-aware manner, and they factor potential tax consequences into the management of portfolios. If your portfolio includes a number of low basis holdings, your portfolio may not reflect the firm's “best thinking” regarding asset allocation and investment implementation. Use this discussion as an opportunity to discuss what other client-specific factors about you the firm incorporates into the management of your portfolio, such as time horizon, liquidity needs, etc. You might find the 5 simple ideas to fine-tune your investment portfolio suggested here helpful in this conversation.

Ask about your all-in fees and expenses. Ask your advisor about the comprehensive fees that you are paying as fees will certainly erode investment returns over time. Investment advisors and managers generally charge a percentage of assets under management. However, these AUM fees are are very likely only one component of the fees you are paying. Additional fees may include investment vehicle fees (on mutual funds and exchange-traded funds), trading commissions and other transaction costs, and custodial fees.

Ask to be treated like a prospective client. Advisory firms are constantly evolving and refining their offerings. Ask to have your advisor or a business development person with the firm make a presentation to you as if you were a prospect. The firm may offer additional products and / or services that could be relevant to you and your family.

After discussing these questions with your advisor, you may determine that it's time to part ways. Or you may decide to move a portion of your assets to a new advisor to see if he/she is a better fit for you. If you go that route, we encourage you to ask these questions of new firms you interview too. Reading “Wealth Management Unwrapped” may also help you become an even more informed consumer of investment management services.

Kimberly Clouse is chief client advocate for Covestor a registered investment adviser and online marketplace.

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